Supply Chain Management

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 Content
• Meaning - Supply Chain
• Flows in a supply chain
• Philosophy of SCM
• Efficiency: Basis of Production Management
• Evolution of SCM
• Importance of SCM
• Conflicting Objectives in the Supply Chain
• Decision Phases in a Supply Chain
• Process view of a supply chain
• Supply Chain Design
• Supply chain objective
• Examples of Supply Chains
• Integration of the Supply Chain
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Supply Chain Challenges MS 213 2
 Meaning - Supply Chain
Flow of products and services from:
– Raw materials manufacturers
– Intermediate products manufacturers
– End product manufacturers
– Wholesalers and distributors and
– Retailers
• Connected by transportation and storage
activities
• Integrated through information, planning, and
integration activities
• Cost and service levels

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 Some Definitions
Supply Chain Management encompasses every effort
involved in producing and delivering a final product
or service, from the supplier’s supplier to the
customer’s customer. Supply Chain Management
includes managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and
order management, distribution across all channels,
and delivery to the customer.
The Supply Chain Council, U.S.A.

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 Other Formal Definitions
The design and management of seamless, value-added
process across organizational boundaries to meet the
real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw materials
and parts, manufacturing and assembly, warehousing
and inventory tracking, order entry and order
management, distribution across all channels, and
delivery to the customer
The Supply Chain Council

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 Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
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costs
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 Flows in a supply chain

Information

Product
Customer
Funds

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 Key Observations
• Integrated activity:
* Among functions such as logistics, manufacturing, distribution,
design/engineering, marketing, finance,etc.
* Multiple organizations,i.e., suppliers, customers& 3 PL providers
* Coordination of conflicting goals, metrics, etc.
• Responsible for multiple flows:
* Information (orders, status, contracts)
* Physical (finished goods, raw material, w.i.p.)
* Financial (payment, credits, etc.)

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 Key Observations (continued)
• Most analysis involves trade-offs
* Across differententities
* Across metrics: Cost, Service, Time, Risk, etc.
• Each interface in the supply chain represents
* Movement of goods
* Information flows
* Transfer of title
* Purchase and sale

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 Philosophy of SCM
• The entire supply chain is a single, integrated entity.

• The cost, quality and delivery requirements of the

customer are objectives shared by every company in
the chain.

• Inventory is the last resort for resolving supply and

demand imbalances.

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 Efficiency: Basis of
Production Management
• Efficiency leads to lower costs
• Lower cost implies
Lower Price => Greater demand => Better market
growth => Higher profits => Product/ Process
development => Better market share
• 1980s and 1990s: Era of achieving excellence at the
firm level (JIT, TQM, TPM, BPR, ERP, etc)
• 2000s: Era of achieving excellence at the value chain
level (SCM, CRM, E-Commerce, etc.)

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 Evolution of SCM

Stage 1: Vendor – Purchase – Production

- Distribution – Retailer

Stage 2: Materials Management -

Logistics Management

Stage 3: Supply Chain Management

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 Importance of SCM
• Strategic Advantage – It Can Drive Strategy
* Manufacturing is becoming more efficient
* SCM offers opportunity for differentiation (Dell) or cost
reduction (Wal-Mart or Big Bazaar)
• Globalization – It Covers The World
* Requires greater coordination of production and
distribution
* Increased risk of supply chain interruption
* Increases need for robust and flexible supply chains

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 Importance of SCM (continued)
• At the company level, supply chain management
impacts

* COST – For many products, 20% to 40% of total product

costs are controllable logistics costs.

* SERVICE – For many products, performance factors such as

inventory availability and speed of delivery are critical to
customer satisfaction.

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 Conflicting Objectives in the Supply Chain

1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost

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 Conflicting Objectives in the Supply Chain
3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices

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 Decision Phases in a Supply Chain
• Supply chain strategy or design
• Supply chain planning
• Supply chain operation

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 Process view of a supply chain

• Cycle view

• Push/pull view

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 Cycle View of Supply Chains
Customer

Customer Order Cycle

Retailer

Replenishment Cycle
Distributor

Manufacturing Cycle
Manufacturer

Procurement Cycle
Supplier
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 Customer order cycle
• Customer arrival
• Customer order entry
• Customer order fulfillment
• Customer order receiving

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 Replenishment cycle
• Retail order trigger
• Retail order entry
• Retail order fulfillment
• Retail order receiving

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 Manufacturing cycle
• Order arrival from the distributor, retailer, or
customer
• Production scheduling
• Manufacturing and shipping
• Receiving at the distributor, retailer, or customer

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 Push/Pull View of Supply Chains

• Pull processes: execution is initiated in

response to a customer order
• Push processes: execution is initiated in
anticipation of customer orders

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 Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
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 SUPPLY CHAIN DESIGN:
Three Components
1. Insourcing/OutSourcing
(The Make/Buy or Vertical Integration Decision)

2. Partner Selection
(Choice of suppliers and partners for the chain)

3. The Contractual Relationship

(Arm's length, joint venture, long-term contract,
strategic alliance, equity participation, etc.)

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 LESSONS IN
SUPPLY CHAIN DESIGN
1. KNOW YOUR LOCATION IN THE
VALUE CHAIN.
2. UNDERSTAND THE DYNAMICS OF
VALUE CHAIN FLUCTUATIONS.
3. THINK CAREFULLY ABOUT THE
ROLE OF VERTICAL COLLABORA- -
TIVE RELATIONSHIPS.

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 Dell Computer’s supply chain

• Customer
• Web page
• Assembly plant
• All of Dell’s suppliers and their suppliers
• Dell builds to order: customer order
initiates manufacturing at Dell
• Dell does not have a retailer, wholesaler,
or distributor in its supply chain

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 Dell Computer’s supply chain

• Dell carries only about 10 days of inventory (vs.

80 to 100 days of inventory for the competition)
• Less inventory to become obsolete, e.g.,
computer chips
• Less inventory to be defective (implications of
small inventory and product quality)
• No finished product inventory; some parts no
inventory, e.g., Sony monitors
• Dell outsources service and support to 3rd party
providers
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 Supply chain objective
• Maximize overall value generated
• Value strongly correlated to supply chain
profitability – the difference between the revenue
generated from the customer and the overall cost
across the supply chain

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 Examples of Supply Chains

• Dell / Compaq
• Toyota / GM / Ford
• Milk Distribution System of NDDB
• Merry-Go-Round System of NTPC
• Dabbawalas of Mumbai
• Amazon / Borders / Barnes and Noble

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 Three Types of Integration
of the Supply Chain

• Geographical Integration
*From local to world-wide logistics
• Functional Integration
* From Function-dominated logistics to
Flow-dominated logistics
• Inter-Firm Integration
* From a Sector-based Logistics to Inter-sector Logistics

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 Supply Chain Integration is Difficult for two
main reasons
• Different facilities in the supply chain may have
different, conflicting objectives
* For instance, the suppliers are in direct conflict with the
manufacturers’ desire for flexibility.
• The supply chain is a dynamic system that
evolves over time
* Not only do demand and supplier capabilities change over
time, but supply chain relationships also evolve over time.

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 Complexities Involved in
Supply Chain Management
• The supply chain is a complex network of facilities
and organizations with different, conflicting
objectives
• Matching supply and demand is a major challenge
• System variations over time are also an important
consideration
• Many supply chain problems are new and there is no
clear understanding of all the issues involved

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 Supply Chain: The Complexity
National Semiconductors:
• Production:
– Produces chips in six different locations: four in the US, one
in Britain and one in Israel
– Chips are shipped to seven assembly locations in Southeast
Asia.
• Distribution
– The final product is shipped to hundreds of facilities all over
the world
– 20,000 different routes
– 12 different airlines are involved
– 95% of the products are delivered within 45 days
– 5% are delivered within 90 days.
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 Supply Chain Challenges
• Achieving Global Optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time

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 Supply Chain Challenges
• Achieving Global Optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time
• Managing Uncertainty
– Matching Supply and Demand
– Demand is not the only source of uncertainty

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